The US last week reimposed a number of sanctions on Iran following President Donald Trump’s decision in May to withdraw from the Joint Comprehensive Plan of Action. On the same day, the EU put in place a “blocking statute” designed to protect European companies with interests in Iran from US sanctions. The dispute presents a test of the extent to which the US can use its economic might rather than persuasion to force its European allies to comply with its wishes.
The EU’s blocking statute “forbids EU persons from complying” with the US extraterritorial — sometimes referred to as “secondary” — sanctions that aim to penalize non-US firms for doing business with Iran. It is also designed to help European firms “recover damages” suffered by US penalties. The blocking statute, which the EU updated to counter the Iran sanctions, is an unusual move. It was originally instituted in 1996 in response to secondary sanctions regarding Cuba, but the current situation is very different in many ways.
The EU faces significant challenges in countering the US sanctions that were reimposed last week and, more importantly, the further sanctions that are scheduled to be reintroduced in November, which include targeting Iran’s oil and gas sectors. The EU is hoping that it can maintain sufficient trade and business relations with Iran to persuade Tehran to continue abiding by the JCPOA’s terms. However, the blocking statute is a fairly weak instrument, at least regarding large, multinational firms based in Europe. The Trump administration has been clear that it intends to strictly enforce the sanctions. On Aug. 7, for example, Trump tweeted: “Anyone doing business with Iran will not be doing business with the United States.”
Many large European companies have extensive interests in the US and rely on American financing and the US dollar. These interests nearly always exceed their far smaller interests in Iran. In many cases, European companies would prefer to face EU penalties rather than US fines or loss of access to the US market or financing. The EU might struggle to enforce its ban on European companies complying with the US sanctions, as many firms could claim that they pulled out of Iran or chose to avoid entering the Iranian market for other reasons. Certainly, some European firms that looked at Iran after the JCPOA was signed chose not to invest due to concerns about political and business risks inside Iran and difficulty obtaining financing from European banks.
Several large European companies have already suspended or are winding down operations in Iran, including Total, Daimler, PSA, Siemens and Maersk, among others. Even Renault, which originally indicated a desire to remain in Iran despite US sanctions, appears likely to pull out, according to multiple media reports.
The EU and individual European governments are considering other measures that might encourage companies to do business with Iran. In July, the European Parliament voted to allow the European Investment Bank to invest in Iran. However, the EIB’s president indicated that it was unlikely to do so, given that it would threaten the EIB’s ability to tap into US financial markets. Some governments offer or are considering other measures, including export and credit guarantees, to support businesses interested in Iran, but few firms have taken advantage of the existing options so far.
Faced with sanctions, tariffs, personal spats with Trump, questions about NATO and other disagreements, many in Europe are questioning the nature of their relationship with the US.
Kerry Boyd Anderson
While most large, multinational firms are likely to choose their US interests over their Iranian ones, the EU blocking statute might allow some smaller firms with limited or no exposure to the US to pursue business in Iran. In fact, the removal of larger competitors might benefit smaller European firms that want to gain a foothold in the Iranian market.
Much will depend on the impact of the additional sanctions that Washington will reimpose in November and, in particular, on how much success the Trump administration has in persuading Europe and other countries to cut their oil and gas imports from Iran. The Trump administration has a target of zero imports, but that is unrealistic.
Before the JCPOA, in 2012, the EU imposed an oil boycott against Iran; however, this reflected not only US persuasion but also real European concern about Iran’s nuclear activities. Today, Europe strongly supports the JCPOA and opposes the US sanctions, and is very unlikely to impose its own oil sanctions on Iran, at least as long as Iran complies with the JCPOA. Analysts disagree over the extent to which US sanctions will force European lenders, refiners and insurers involved in the oil trade to opt out of importing from Iran. The outcome will be significant in deciding the actual economic impact of US oil sanctions on Iran. The extent to which Asian importers continue importing crude and condensates from Iran will be more important, but Europe also is a significant player.
There is no doubt that the US sanctions will badly damage Iran’s economy and Europe’s investment and trade relations with Tehran. It remains unclear, however, how successful the sanctions will be in cutting Europe’s economic ties to Iran. Certainly, the situation today will be different than in the years prior to the JCPOA, when Europe and the US were united in pressuring Iran through sanctions.
Meanwhile, the US withdrawal from the JCPOA and strict imposition of extraterritorial sanctions is another unusual point of contention in transatlantic relations under the Trump White House. Faced with secondary sanctions, tariffs, personal spats between Trump and European leaders, questions about NATO, and other significant disagreements, many Europeans are questioning the fundamental nature of their relationship with the US.
- Kerry Boyd Anderson is a writer and political risk consultant with more than 14 years’ experience as a professional analyst of international security issues and Middle East political and business risk. Twitter: @KBAresearch